Do You Need To Apply For The Hire Purchase Loan Moratorium?

UPDATE 2021

On January 11, the Prime Minister announced that a new Movement Control Order (MCO) had been imposed. The AGC was then extended to the entire Malaysian Peninsula and Sabah. Additional help for Covid-19 was also announced on January 18.

In response, Banque Negara (BNM) also ad that borrowers can request moratorium extensions on their existing bank loans, which will not affect their credit report.

The Association of Banks of Malaysia (ABM) and the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM) also issued a joint statement to help affected borrowers extend the existing moratorium. This repayment assistance had also been extended to those affected by the devastating floods in several states.

Will we be slapped with extra interest if we take the moratorium, or will we not? This is a question most people ask themselves.

To address some of this confusion, we’ve written this article to break down three options you have and what the repercussions or benefits of each option are.

ICYMI

Just a bit of background, BNM released a statement on March 25, 2020 on measures to help individuals manage their existing loans or funding during this difficult time. The statement says individuals and SMEs will have the option to defer their loan or financing repayments from April to September 2020. This applies to performing loans and financings that have not had overdue payments for more than 90 years. days from April 1, 2020..

On April 30, the BNM issued another statement to “clarify” the moratorium specifically for fixed rate Islamic leasing and financing. In this new statement, he says borrowers will have to go through certain steps, based on the bank’s instructions, to complete the process of subscribing to the moratorium. It also states that banks will be required to notify borrowers of any changes in the payment schedule and payment amounts.

On May 6, 2020, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz issued a statement that no additional charges will be applied to deferred installment payments during the entire six-month moratorium period.

What does this mean for you and me?

The confusion probably stems from the incredibly technical language used in the ads, which may not be immediately understandable to a layman.

The good thing is that if you opted for the moratorium in April, you can still opt out if you change your mind.

With the latest changes, joining the moratorium (which may require you to sign a consent to do so) seems like the better option.

Example:

You have a lease with the following details:

Auto loan amount60,000 RM
Interest rate2.71% per year
Initial loan term5 years
Total interest paid over the life of the loan8,130 RM
Total payments made to date24
Loan end dateMay 2023

Option n ° 1 Deactivation of the moratorium

If your finances allow, you may consider opting out of the moratorium. Some banks may require you to give your consent to join the moratorium. This requirement differs from bank to bank.

According to BNM, even if you signed up in April, you can still unsubscribe without penalty in May.

This is what the repayment schedule will look like in this option:

Rental purchase moratorium

In this option:

Total interest paid over the life of the loan8,130 RM
Additional interest incurredRM0
The end date of the loanNo change

Verdict

This is the simplest option, but not necessarily the best. If your finances allow it and you want to keep it simple, you can go for this option.

Option 2: Accept the moratorium on loans, but pay it back in a lump sum

With the latest changes, opting for the moratorium has many advantages. There will be no fees to pay, whether you decide to pay all at once or take back your deposit at your usual amount. However, paying the deferred amount in a lump sum may not be an acceptable option for some people as it forces the individual to shell out a large amount of money at the end of the moratorium.

You can make the money you saved by not paying off your car loan more effective by putting it in a high interest account such as a fixed deposit account.

If your finances allow, this may be the best option for you. Here’s how.

Rental purchase moratorium

Note: The total amount payable of RM 7,949 is made up of 6 months of deferred refunds and October refunds.

Assuming you deposit the monthly repayment amount of RM 1,135.50 into a fixed deposit account each month for 6 months, this is how much you can potentially earn:

Interest rate on fixed / term deposits2.60% per year
Total depositedRM 6,813.00
Total Won51.85 RM

Based on the MBSB term deposit rate i, 6 month rate of 2.60% per annum

Verdict

While the amount won is not huge, every penny counts now, especially in these uncertain times. It is better to save money in a more liquid fixed / term deposit and earn a small bonus at the end of 6 months. Of course, this might not be possible for everyone, but it’s the best option if you can afford it. With this option, the term of your loan will not be extended either.

Option 3: take the moratorium on loans and extend the loan term by 6 months

This is perhaps the most popular option, especially for those who are economically affected during this time. With the latest announcement from the Minister of Finance, this is a great option because you can keep your cash flow without incurring any additional interest.

This means that you won’t have to make a monthly repayment during the moratorium period and maintain the same repayment after the moratorium. However, the term of your loan will be 6 months, but no additional interest will be accrued.

This is what the repayment schedule will look like in this option:

Rental purchase moratorium

In this option:

Total interest before the moratorium8,130 RM
The end date of the loanNovember 2023

Verdict

This option under the moratorium is intended to help you with your cash flow in the event that your income is affected during this period. It doesn’t incur additional interest, but it will take you longer to settle your loan.

In conclusion, in option # 1 nothing really changes for the borrower, while in option # 2 you could earn an extra bonus through something like term / fixed deposit accounts, as well as the security of having cash on hand.

In Option 3, which is probably the most common option, you will not incur the most interest, but will have to extend your loan for 6 months. However, a 6 month extension may be worth it for peace of mind in the event of loss of employment or income during this period.

The above calculations and options may differ from bank to bank. Therefore, it is best for you to speak to your bank to find out more about the options available to you.

Remember, the car loan may not be your only financial commitment. When deciding which option to choose, consider your overall financial situation and expenses to ensure you can handle payments after the moratorium.

Let us know which option you will likely choose in the comments section below!

This article was first published on May 1, 2020 and has been updated for freshness, accuracy, and completeness.

Image from Freepik


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